The end-of-financial-year wrap: SmartCompany judges the economy’s last 12 months

The last financial year was one with mixed economic results. In February the share market soared above the magic 5000 mark for the first time in a long while, before swiftly crashing back down. The Australian dollar has experienced unusual highs and the country’s unemployment rate is tipped to rise.

As businesses are now planning for the new financial year, SmartCompany takes a look back on the highs and lows of the past year and asks experts what to expect for the year ahead.

Sharemarket

Housing Industry Association chief economist Harley Dale told SmartCompany it’s been a “tale of two halves”.

“Investors didn’t really get what they were looking for throughout last year and the most recent part of this past financial year, but in the first couple of months of 2013, there had been signs the market was recovering,” he says.

In February the share market exceeded 5000 points, which is often considered a psychological hurdle for investors, but in May the ASX200 lost more than 7% of its value and the decline continued throughout June, wiping out all of the early gains and more.

In mid-June 2013, some positive economic news from the United States buoyed the share market to its biggest single-day gain for the year, rising almost 2%, but this was on the back of four weeks of straight declines, showing the general volatility in the market.

Dale says there have been “a couple of false storms”, but largely people have recognised a general upward momentum.

“From late last year there were clear gains in the equity market and the strength is there.

“Now it’s a bit wobbly and it’s quite an uncertain environment. It’s quite difficult to pick the path of the market, but I wouldn’t be surprised if we do see some upward momentum and it gets back over the 5,000 mark,” he says.

Employment

Australia’s labour market has experienced two distinct periods within the past year. JP Morgan economist Tom Kennedy told SmartCompany in the past six months the jobless rate has “ticked higher”, while in the first six months of the 2012/2013 financial year the employment rate had remained relatively steady.

“There has been a slowdown in domestic growth in the past six months and this has also been reflected in higher rates of unemployment.

“We’re currently at 5.5%, but we think it will approach 6% by the end of the year, as the economy starts to slow down further,” he says.

In the first six months of the year, the employment rate had stayed low between 4.9% and 5.2%, but Kennedy says the even 6% is still low compared to other developed markets at the moment.

“In the US it’s about 7.5% currently, and it’s higher again across Europe, so if we peak around this level it’s still significantly below other countries.

“But it is a high for the past couple of years and it’s starting to approach GFC levels,” he says.

Consumer and business confidence

Over the past year there has been a clear distinction between consumer and business confidence. As consumer confidence has started to improve, business confidence has remained flat.

“Consumer confidence has gotten higher as the Reserve Bank of Australia has lowered rates, which improves affordability metrics for people with debt,” Kennedy says.

Gains from the share market and improvements in the housing market, with clearance rates in Sydney now at three year highs and Melbourne also tracking well, has also resulted in higher consumer confidence.

“Over the past six months what we’ve seen is the rate cuts start to filter through and this has helped with mortgage repayments and a boost in the stock market which also helped household wealth. This then translated to consumer sentiment,” Kennedy says.

He says while consumer confidence has been on the up, business confidence has remained relatively unchanged in the past 18 months.

“It’s sitting around minus 9 to plus two in index terms, which is quite low. The high value of the dollar weighed a lot on the trade sectors and the slowdown in growth over the past few quarters has hit the discretionary sectors, including retailers and even construction.

“This hasn’t been apparent in the national accounts because of the strong investment boom and mining-led growth, but it’s been shown in business confidence data,” he says.

Dale says confidence in the building industry has been particularly low.

“It’s still very weak, on the renovations side, activity is at a 10-year low and the new home building sector is still recovering from a recession level of activity,” he says.

Housing sector

Dale says while there has been a rise in house prices and improved clearance rates, many businesses involved in the housing sector are still struggling.

“Over the past financial year there has been a bit of a recovery in dwelling prices and there is some information from RP Data out today which shows a 3.8% increase in dwelling prices, but without inflation that’s not much of a gain.”

“At the same time as this was occurring, there was no growth in spending in renovations, with a projected decline of 5% from what people spent on renovations. This is a $30 billion a year industry and it’s pretty much running at a 10-year low,” he says.

Dale predicts in the coming year there will be better results in the new-home building market, with “modest growth” projected.

Australian dollar

If you’ve been following the trajectory of the Australian dollar, it’s been a wild ride. From record highs, it fell late in the financial year to as low as US92 cents.

Much of the focus has been on the dollar’s relation to the US dollar, but it’s also fared poorly recently compared to the Euro, Yen and NZ dollar.

Kennedy and Dale both predict it’s likely to remain on a downward trajectory, as the RBA has signalled possible lower rates and declining growth rates.

“This suggests the Australian dollar will be weaker,” Kennedy says.